China's leadership challenge in new era: douse "inequality volcano"

YANGCHANG, China (Reuters) - In the mountain village of Yangchang in the backwater province of Guizhou in southwestern China, the roof of the Yang family home is cracked and about to cave in, held upright only by a few rickety tree trunks.

Nearly penniless after quitting their jobs in a coastal city, Yang Hechun and her husband recently returned to the village to care for a sickly 71-year-old grandmother and two young children.

"We can hardly afford to eat, never mind mend our house," said Yang, over a meal of rice, chilli bean sprouts, peanuts and tofu. "We earn one yuan, then we spend one yuan."

As China prepares for its once in a decade leadership transition at the 18th Communist Party Congress, which begins on Thursday in Beijing, the outside world sees an inexorably rising economic power: Beijing is now the world's largest exporter, the second-biggest economy overall, and it controls over $3.2 trillion in foreign exchange reserves.

Yet the disconnect between those numbers and the lives of families like the Yangs lies at the core of the most vexing issues the country's incoming leadership will confront: sustaining economic growth, rooting out corruption, narrowing the wealth gap, and preserving the party's legitimacy in the face of mounting public grievances over decades of iron-fisted rule.

President Hu Jintao, in a speech at the opening of the party congress on Thursday, is expected to tout the country's economic advances over the past decade, while acknowledging that China still faces many difficulties.

Reforms, most economists agree, will be vital to avoid stagnation and bigger socio-economic disruptions. What's unclear is just how aggressively the incoming leadership will push new policies.

Though Yang Hechun acknowledges her family's life has improved over the past decade, their continuing daily struggles resonate in villages, cities, campuses and factory floors throughout China.
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